Regulator delays potential drop in Fannie, Freddie loan limits

It looks like the limits on Fannie Mae and Freddie Mac mortgages won’t drop Jan. 1 after all.

In early September, the Federal Housing Finance Agency, which regulates Fannie and Freddie, said it “has been analyzing approaches for reducing Fannie Mae and Freddie Mac loan limits across the country, and any such change would be announced with adequate advance notice for implementation on Jan. 1, 2014.”

The “housing industrial complex” fought hard against any reduction, says FBR Capital Markets analyst Ed Mills. A slew of new mortgage rules take effect Jan. 1 and the real estate, home-building and mortgage associations argued that reducing Fannie and Freddie loan limits at the same time “could lead to a contraction of credit.”

On Thursday, FHFA acting director Edward DeMarco said the agency realized the industry “had an awful lot going on” Jan. 1 and decided to postpone any potential increase. He said that any loan-limit changes will be announced six months before their effective date and that such changes would not be announced until November at the earliest. That would push any drop into at least May.

Today, Fannie and Freddie Mac insure mortgages up to $417,000 in most parts of the country and up to $625,500 in certain high-cost areas, including most Bay Area counties.

There was widespread speculation that FHFA would reduce the standard limit to $400,000, but it wasn’t clear whether the high-cost limit would come down by a proportionate amount or all the way to $400,000.

The government wants to reduce Fannie’s and Freddie’s giant footprint in the mortgage market. DeMarco has said the best way to do that is to increase the guarantee fee they charge on loans and reduce loan limits.
“With the FHFA apparently backing off a loan limit decrease, there could be some speculation that a new g-fee increase is likely,” Mills said in a report earlier this week. “While we believe FHFA will continue to seek an increase in the average g-fee, we do not believe a significant increase is likely nor a priority item for the FHFA.”